When a Corporation Is Thinly Capitalized, the IRS Is More

question 3

True/False

When a corporation is thinly capitalized, the IRS is more likely to reclassify a portion of the corporation's debt as equity.

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Definitions:

Double Counting

A statistical or accounting error where a transaction or value is counted more than once, skewing results.

Parent

A company that controls or owns another company or companies.

Subsidiary

A company that is completely or partially owned and controlled by another company, known as the parent company.

Identifiable Asset

An asset that can be separated and sold, transferred, or licensed, and has a clear value or benefit to the business.